Hershey Earnings Preview

| About: The Hershey (HSY)

The Hershey Company (NYSE:HSY), one of the leading U.S. producers of confectionery products, is scheduled to report its third-quarter 2010 financial results on Thursday, October 21, 2010. The current Zacks Consensus Estimate for the quarter is 79 cents a share.

Second-Quarter 2010, a Synopsis

Hershey posted better-than-expected second-quarter 2010 results that topped the Zacks' expectations. The quarterly earnings of 51 cents a share beat the Zacks Consensus Estimate of 47 cents, and rose 18.6% from 43 cents earned in the prior-year quarter.

The company’s net sales during the quarter increased 5.3% to $1,233.2 million from the year-ago quarter. The growth was mainly driven by favorable pricing and improvement in the international business, including a 1.0% positive impact from foreign currency translation. Furthermore, management stated that ramped-up advertising spend and increased in-store promotions and merchandising drove operating performance.

Third-Quarter 2010 Consensus

Analysts considered by Zacks, expect Hershey to post third-quarter 2010 earnings of 79 cents a share. The current Zacks Consensus Estimate represents a year-over-year growth of 8.2%. The estimates in the current Zacks Consensus for the quarter range from a low of 75 cents to a high of 85 cents.

The current Zacks Consensus Estimate has increased by a penny to 79 cents in the last 30 days with 2 out of 15 analysts covering the stock revising their estimates upwards, and one analyst lowering his estimate. In the last 7 days, only 1 analyst has raised his estimate while none of them has lowered their estimates.

With respect to earnings surprises, Hershey has topped the Zacks Consensus Estimate over the last four quarters in the range of 5.0% to 36.2%. The average remained at 14.7%. This suggests that Hershey has outperformed the Zacks Consensus Estimate by an average of 14.7% in the last four quarters.

Given the past trends, we believe that Hershey’s third-quarter 2010 earnings may surpass the Zacks Consensus Estimate.

Hershey Holds a Zacks #3 Rank

Currently, we are Neutral on the stock. Moreover, Hershey holds a Zacks #3 Rank, which translates into a short-term Hold recommendation and correlates with our long-term view.

The implementation and execution of a price increase, investments in core brands and supply chain improvement plans have helped the company to sustain its growth momentum. The company also has a strong presence in the health and wellness category along with strong distribution partnerships. However, increasing competition in the confectionery category is negatively affecting Hershey’s near-term prospects.

Hershey is primarily a North American company having a small exposure to foreign markets with sales outside of North America representing less than 10% of total revenues. However, by focusing on disciplined expansion in Asia and the Americas and by leveraging its core competencies, the company aims at expanding internationally.

The key markets highlighted for growth include Mexico, Greater China, India and South America where the company’s brands are well known and have potential for growth.